The Piranha Of Portugal: Greatest Counterfeiter Of All Time
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By Bryan Taylor
The new US
$100 bill is out, as you may have seen this holiday season. Our dear old Uncle
Ben is a technological wonder with a dozen different anti-counterfeiting
devices on it. Since there are more $100 bills circulating outside of the
United States than inside, the U.S. Government has to insure that
counterfeiters are unable to replicate the government’s most treasured export.
This raises the question, who was the greatest counterfeiter of all time?
Government
Counterfeiting
Although
governments have done more to destroy their own currencies than all the
counterfeiters in the history of mankind put together, the government is not
the correct answer. Governments have debased their own currency for millennia.
Historical examples of government-induced debasement include:
§ The Roman Empire replacing its silver Denarii with billon Antonininii;
§ The Khans of China creating the first paper inflation in the 1300s;
§ The United States making its first currency, the Continental Dollar, worthless;
§ Germany hyperinflating out of its debts by creating trillions of marks;
§ Or the US Federal Reserve blowing up its balance sheet.
In holding
governments accountable, we are also not talking about one government
counterfeiting the currency of another government as the
§ Barbarians did of the Roman gold Aureus
§ British did of Continental Dollars and French Assignats during the 1700s
§ Germans did of British Pounds during World War II in Operation Bernhard
§ United States did of Japan’s Occupation currency of the Philippines
§ North Koreans did of US Dollars, making them one of their principle exports.
Governments
have consistently destroyed their own currency and those of other countries
without ever being held accountable for their “crime” the way a counterfeiter
is punished. No, we are not talking about governments; we are talking about
individual counterfeiters.
It is one
thing for the government to expand the money supply in order to stimulate the
economy and help the unemployed. It is quite another for counterfeiters to do
the same – albeit on a much smaller scale – to benefit themselves.
Counterfeiters provide competition to the government, and though government
officials are applauded when they inflate the economy, counterfeiters are
condemned to prison when caught.
A Classy
Counterfeiter
Our vote
for the greatest counterfeiter of all time goes to Artur Alves dos Reis whose
story was recounted by Murray Teigh Bloom in The Man Who Stole Portugal.
Reis was both smart and classy, and his criminal operation reflected these
qualities. To my knowledge, Reis put together the most audacious counterfeiting
scheme in history. He conceived his master plan while he was in jail in Oporto
for embezzling the funds of a company he had taken over. Some criminals sit in
jail and try to avoid repeating their misfortunes. Others, like Reis or Tony de
Angelis, think-up bigger, more foolproof schemes. While he was sitting in his
cell, Reis put together his master plan that would make him the richest, and
possibly the most influential man in Portugal in only one year.
Counterfeiting
is a very complex operation. To be successful, (i.e. not get caught), be able
to spend your money, and not receive free room and board from the government,
you have to do three things successfully. First, you have to create counterfeit
currency that can’t be detected. Second, you need a way of laundering the money
and converting it into real assets so you can enjoy the fruits of your
ill-begotten labors. Third, you must make sure that you avoid the triple curse
of detection, arrest and conviction. Let’s see what Reis’s solution was to this
age-old problem.
Step One:
Create an Undetectable Banknote
First,
create a counterfeit that can’t be detected. During the 1920s, the Banco do
Portugal had the exclusive right to print currency in Portugal. The bank used
foreign printing companies with superior anti-counterfeiting technology to
protect their banknotes. The English company, Waterlow & Sons, printed the
500 and 1000 Escudo notes (equal to about $25 and $50 in 1923) for the Banco do
Portugal. So why not get Waterlow & Sons to print the notes for Reis as
well?
Reis was a
natural-born forger. He forged his diploma as an engineer from Oxford as a
“joke,” but this helped land him a job as a government railroad inspector in Angola
at the age of twenty-two. In 1924, he forged $100,000 worth of checks and used
the money to take over control of Ambaca, the Royal Trans-African railway
Company of Angola. He then used the money in the company’s treasury to cover
his own checks. He was arrested in July 1924 for embezzlement, but was released
two months later when a court decided his was a civil and not a criminal case.
It was
during the two months he was the guest of the Oporto police that he conceived
his infamous counterfeiting scheme. The key was to find someone with a
respected name who could help him convince Waterlow & Sons to print
banknotes secretly for Reis. He found three men of questionable repute, but
with connections to help Reis: Jose Bandeira, Gustav Adolf Hennies and Karel
Marang.
Bandeira
got his brother, the Portuguese Minister to the Netherlands, to give Marang a
letter introducing him as a respected Dutch citizen who had a power-of-attorney
for Alves Reis to negotiate the printing of the banknotes. Marang went to Waterlow
& Sons in London, and presented his letter of introduction as the “Consul
General of Persia” on forged Banco do Portugal stationary to Sir William
Waterlow.
Marang
spun the story Reis had instructed him to give. A private syndicate was being
formed to save the colony of Angola from its current dire financial condition
with a $5,000,000 investment. In return for the loan, the syndicate would be
allowed to print and circulate banknotes in Angola. Waterlow & Sons would
print the banknotes for the syndicate, and once the notes reached Angola, the
banknotes would be supercharged with the word ANGOLA so they wouldn’t be
confused with notes from the mother country. The whole affair had to be kept
secret lest Angola fall into further financial difficulties due to ill-placed
rumors of pending economic ruin.
Sir
William knew that supercharging notes was normal practice for Portugal’s
colonies, and that the Banco Ultramarino had the exclusive right to print
banknotes for the Portuguese colonies. This was an opportunity for Waterlow
& Sons to get this business away from Bradbury, Wilkinson & Co., the
current printer of banknotes for the Banco Ultramarino in Angola.
Marang
asked Waterlow to print the 500 Escudo note with Vasco da Gama on it. The deal
was signed on January 6, 1925, and for the printing cost of $7,200, Reis and
his conspirators would receive $5,000,000 in banknotes, a 70,000 percent return
on their investment. Bandeira picked up the first group of notes from Waterlow
& Sons on February 10, and by March 20, they had 100 million Escudos
($5,000,000) in Portuguese banknotes. Bandeira used his orange diplomatic card
to transport the bills in luggage marked the “Legation of Portugal” across the
borders without detection. After the first step had been successfully
completed, they placed an order for an additional 190 million Escudos in
banknotes ($9,500,000). Of course,
the banknotes never made it to Angola.
The
greatest risk in the scheme was having banknotes with duplicate numbers
discovered, but this was the lesser of two evils. If Reis and Marang had
requested banknotes outside the numerical range of the 500 Escudo notes, the
spurious notes would have been quickly discovered. The lower risk lay in
duplicating the existing serial numbers, and hoping the counterfeiters were
able to successfully release all the banknotes before the law of large numbers
caught up with them.
Step Two:
Laundering Money with Your Own Bank
Step One
of the plan was complete, now for Step Two: laundering the money. A small-scale
counterfeiter can pass bills through petty criminals, but the notes Reis and
friends had were equal to almost 1% of Portugal’s GDP. This was the equivalent
of over $150 billion if the same amount had been released in the United States
today. Even if Reis hired every petty criminal in Lisbon and Oporto, he
wouldn’t be able to unload a fraction of the banknotes.
Reis was
going first class with his counterfeiting scheme, and he decided the only way
to launder the money was to have his own bank. Reis used his newly printed
banknotes to encourage corrupt Portuguese officials and politicians to grant
him his bank charter, and on June 15, 1925, the Banco Angola e Metropole’s
application was approved by the government. Of course, the bank would have
multiple branches in Lisbon and Oporto to speed up the distribution of their
treasure.
Want to
exchange foreign currency? The Banco Angola e Metropole provides the best rates.
Want to borrow money for a business or mortgage? The Banco Angola e Metropole
will be happy to extend you the loan in cash. Want high interest rates on your
deposits? Go to the Banco Angola e Metropole? In the meantime, Reis, his wife,
and their compatriots spent their money freely, buying jewelry, cars, real
estate, and sending money abroad.
Reis
flooded Portugal with his freshly minted banknotes, and the economy of Portugal
was booming. And as Reis would rationalize, how was this any different from
what a real government did? Was there really any difference between
Keynesianism and counterfeiting?
Step
Three: Avoid Detection (For a While)
Step Three
and the most important of all was how to avoid detection, arrest and
imprisonment. For this, Reis had a brilliant solution. Since they were
counterfeiting Banco do Portugal banknotes, only the Bank could initiate
proceedings to prosecute them. But what if – just what if – Reis controlled the
shares in the Banco do Portugal? The bank had already exceeded its statutory
banknote limit many times over and the directors of the Banco do Portugal had
never been prosecuted, so why should they prosecute Reis? Or as Reis put it,
“How can they arrest us when they’re us and we’re them?”
Like most
European countries, Portugal had suffered inflation after World War I. Prices
had increased 48% per annum between 1919 and 1924, and the Escudo had
depreciated by 87% against the Pound Sterling. Although the Banco do Portugal
was only supposed to issue banknotes thrice its capital, it had, in fact,
issued banknotes a hundred times its capital. Reis’s monetary manipulations
were minor by comparison. The chart below shows the depreciation of the
Portuguese Escudo against the U.S. Dollar after World War I.
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